Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Good U.S. economic data combined with economic stimulus in China sent steel stocks higher in early trading, none more so than U.S. Steel (NYSE: X ) . The mill operator's shares surged early and kept climbing, closing with a 15.5% gain. AK Steel (NYSE: AKS ) and Allegheny Technologies (NYSE: ATI ) also rallied on the news.
So what: A Macquarie analyst linked the gains to a move by China to reduce the banks' reserve requirements, MarketWatch reported. Lower reserves could free up cash to lend for capital improvements, thereby increasing demand for steel, iron, and other construction materials.
Now what: Those buying today are taking a small but probably reasonable risk. Sure, China's growth could slow at any time, but U.S. Steel trades for less than 11 times next year's earnings. I think that's a reasonable price, and I'll be backing that up with a CAPScall. Do you agree? Would you buy shares of U.S. Steel at current prices? Please weigh in using the comments box below.
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